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December 30, 2015

Unlearn what you have learned’ for financial success

Thanks to Michelle Singletary, Washington Post columnist, for three pieces of financial advice:1. "Unlearn that there is good debt and bad debt. When it comes to
a mortgage or education loans, you’ve probably heard that this debt can
be a “good investment.” “Bad debt” is characterized as carrying credit
card balances or taking out payday loans.
But debt is debt. The
problem with “good debt” is that people take on too much by
rationalizing that in the end, they’ll be better off financially"
2. "Unlearn that it’s okay to hold on to your mortgage even into retirement.
People are told that they should keep or get a mortgage for the tax
break. Or if they have extra money, they should invest the funds rather
than pay down their mortgage." "If you itemize deductions on your tax return, you can usually deduct the
interest you pay on a mortgage or for a line of credit tied to your
home. But the tax break isn’t enough to offset all the interest you’ll
pay over the life of the loan. Many people — most of them middle- and
lower-income families — don’t even take the tax break because they don’t
owe federal income taxes or they claim the standard deduction rather
than itemize deductions."Homeowners: Do your homework & figure out IF you are getting a tax deduction on your mortgage interest and, if so, how much. Prospective buyers: Don't just take the assurance of the real estate & mortgage industry that you'll save lots in taxes with a mortgage. The standard deduction for married, filing jointly is $12,600 in 2016. You only get a benefit of itemizing for amounts above that AND THEN ONLY at your marginal tax rate which for most taxpayers is 10 or 15%. So if your itemized deductions, including mortgage interest total $13,600; you only get to reduce your taxes by $100 if you are in 10% marginal tax bracket!3. "Unlearn that renting is throwing away money. Take into 2016 this message: You are not a financial failure if you rent."
Read the full column at: http://wapo.st/1mPtMr7